Output per time period (units) (b) Unit costs

plant and equipment are usually designed to operate at a target production level. Operating below the target output level results in some excess capacity. In the below-target output range, production can be increased more than proportionately to increases in variable inputs. At above-target output levels, fixed factors are intensively used, and the law of diminishing returns takes over. There, a given percentage increase in variable inputs results in a smaller relative increase in output.

The relation between short-run costs and the productivity of variable input factors is also reflected by short-run unit cost curves, as shown in Figure 8.1(b). Marginal cost declines over long-run cost curve

Cost-output relation for the optimal plant in the present operating environment the range of increasing productivity and rises thereafter. This imparts the familiar U-shape to average variable cost and average total cost curves. At first, marginal cost curves also typically decline rapidly in relation to the average variable cost curve and the average total cost curve. Near the target output level, the marginal cost curve turns up and intersects each of the AVC and AC short-run curves at their respective minimum points.3

Was this article helpful?

0 0
Your Retirement Planning Guide

Your Retirement Planning Guide

Don't Blame Us If You End Up Enjoying Your Retired Life Like None Of Your Other Retired Friends. Already Freaked-Out About Your Retirement? Not Having Any Idea As To How You Should Be Planning For It? Started To Doubt If Your Later Years Would Really Be As Golden As They Promised? Fret Not Right Guidance Is Just Around The Corner.

Get My Free Ebook

Post a comment